By Alejandro Lazo
Home prices gained for the seventh consecutive month in December, with Los Angeles and other West Coast cities posting the biggest rises, according to a closely watched index released Tuesday.
The Standard & Poor’s/Case-Shiller index of 20 metropolitan areas scored a modest 0.3% increase on a seasonally adjusted basis.
That’s not huge, but analysts were cheered that prices didn’t dip and that 14 cities posted increases, including hard-hit markets such as Los Angeles, San Diego and Phoenix.
“We have another month of encouraging data,” said Michael D. Larson, a housing and interest rate analyst with Weiss Research. “You have broad-based stabilization in housing, but no rip-roaring rebound.”
The index is an average of three months, so December’s results included sales of homes that closed in October, November and December.
During October and November, demand for homes surged before the expiration of a tax credit for first-time buyers. Congress in November extended and expanded the credit through April.
Los Angeles was the biggest winner of the 20 cities, with home prices up 1.4% on a seasonally adjusted basis in December over November. San Diego was up 1.1% and San Francisco rose 1%. Analysts attributed the California gains to many investors seeking to scoop up foreclosure properties and buyers taking advantage of low prices.
“California is an efficient market,” Cameron Findlay, chief economist at LendingTree.com, said. “Buyers are more astute in terms of monitoring market changes, and in general, they will always lead the market out of a recession.”
Case-Shiller compares sales of detached houses with previous sales and accounts for factors such as remodeling.
Although prices were up from the previous month, they were still lower than a year earlier. The index for 20 cities was down 3.1% compared with December 2008.
In a separate Case-Shiller index, national prices were down 2.5% in the fourth quarter compared with the same period in 2008. But that’s far better than earlier in the year, when the index was down 19% in the first quarter, 14.7% in the second and 8.7% in the third.
“As measured by prices, the housing market is definitely in better shape than it was this time last year, as the pace of deterioration has stabilized for now,” said David M. Blitzer, chairman of the S&P Index Committee. “However, the rate of improvement seen during the summer of 2009 has not been sustained.”
Still threatening a substantial housing recovery this year is the potential for more foreclosures as Americans lose their jobs and fall behind on their house payments. In particular, experts are worried about “strategic defaults,” in which homeowners walk away from properties because they owe more than the properties are worth.
More than 11.3 million homes, or 24% of all properties in the U.S. with mortgages, were in a negative equity position at the end of the fourth quarter of 2009, according to data released by First American CoreLogic. That was an increase from 10.7 million, or 23%, at the end of the third quarter.
“Forces that will bring home prices back down are growing,” wrote Patrick Newport, an economist at IHS Global Insight, in a note to clients. “The big unknown about foreclosures is whether another surge is in the cards because of strategic defaults.”